Sunnier Bean Outlook May Cloud Prices

July 13, 1993|By George Gunset, TRIBUNE STAFF WRITER.

Soybean prices are expected to tumble Tuesday following a government report that projects a surprisingly large harvest this fall despite excessive rainfall and flooding in the Midwest that prevented planting and forced crops to be abandoned.

The Agriculture Department Monday estimated a harvest of 58 million acres of soybeans, practically unchanged from last month, and a yield of 34 bushels an acre, down from 35.1 in June. The crop would total 1.97 billion bushels, compared with 2.05 billion estimated last month.

"While flood pictures look dramatic, there's more high ground than low ground," said Bruce Haffner, independent trader at the Chicago Board of Trade and a panel member at the exchange who assessed the report. "This report is negative for prices. There is nothing bullish here."

Soybeans are a major source of vegetable oil, and the meal is an important source of protein for livestock and poultry.

While the department's World Agricultural Outlook Board called the projections "highly tentative," they were larger than most analysts expected and, if proven accurate, would show that the Great Flood of 1993 has done far less damage to the farm economy than the Great Drought of 1988.

In that widespread disaster, the worst since the Dust Bowl years of the 1930s, 57.4 million bushels of soybeans were harvested yielding 27 bushels an acre for total production of 1.55 billion bushels.

The drought caused even more damage to the corn crop. The national average yield was 84.6 bushels on 58.3 million harvested acres as production plunged to 4.9 billion bushels. The projection for this year is 66.5 million acres harvested with an average yield of 118 bushels and output of 7.85 billion bushels.

Both the soybean and corn estimates are judgment calls based on historical data adjusted for the abnormal weather in the last month. The USDA's first crop forecast based on field surveys will be issued Aug. 11.

Besides supply, several other negatives will weigh on soybean prices according to Haffner and Steve Bruce, analyst with Geldermann Inc. and another CBOT panelist.

"We will be lower Tuesday because emotion has been taken out of the market," said Bruce. "Demand is decreasing and exports are being trimmed." The USDA projected soybean exports at 680 million bushels for the crop year beginning Sept. 1, off 12 percent from this year and down 4 percent from last month's forecast.

Haffner expects soybeans to open from 20 to 30 cents a bushel lower Tuesday, and thinks the price could quickly fall back to the level of $6 to $6.25. In Monday trading, which ended before the USDA report was released, soybeans fell across the board. The November contract, which is the first to reflect this fall's harvest, declined 12 1/2 cents to close at $7.04 1/2.

"You haven't seen foreign buyers jump on the bandwagon as the price has shot up," said Haffner. "The $7 price means that a lot more soybeans will be planted elsewhere, particularly South America. And open interest is extraordinarily high-contracts for 1 billion bushels."

Open interest is the number of futures contracts outstanding that have not been closed out by an offsetting transaction.

A more optimistic outlook for soybean prices was given by Martyn Foreman, analyst with AgriVisor, a marketing advisory service affiliated with the Illinois Farm Bureau.

"The market is going to have a hard time going down for very long," he said. "If the yield was cut by just two bushels, there would be a dramatic effect on supply and prices."

Foreman wouldn't be surprised to see the November contract move up to the $7.60-$7.80 range in the next couple of weeks.

"If the heat now in the Southeast moves in our direction, the shock waves will send the price up to $8 or $9," he said. "This rally isn't over yet. One more threat would be the possibility of an early frost that would damage the crop this fall."

As for corn, Foreman said the market would have little argument with the latest USDA figures. He said it would take significant adverse weather during the coming pollination period for corn to rally to the level of $2.80 to $3 a bushel.

On Monday, December corn futures fell by 5 1/2 cents to close at $2.45 1/2.